Please ensure Javascript is enabled for purposes of website accessibility

Crawford & Company (CRD.A)(CRD.B) Q1 2020 Earnings Call Transcript

By Motley Fool Transcribers - May 7, 2020 at 12:31AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

CRD.A, CRD.B earnings call for the period ending March 31, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Crawford & Company  (CRD.A 2.03%) (CRD.B -0.76%)
Q1 2020 Earnings Call
May. 06, 2020, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, my name is Laurie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company First Quarter 2020 Earnings Release Conference Call. In conjunction with this call, a supplementary financial presentation is available on our website at under the Investor Relations section. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, May 6, 2020.

Some of the matters to be discussed in this conference call and in the supplementary financial presentation may include forward-looking statements that involve risks and uncertainties. These statements may relate to among other things the impact of COVID-19 are expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses, expectations regarding our anticipated contributions to our underfunded defined benefit pension plans, collectability of our billed and unbilled accounts receivable, financial results from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, our long-term capital resource and liquidity requirements and our ability to pay dividends in the future.

The Company's actual results achieved in future quarters could differ materially from results that may be implied by such forward-looking statements. The Company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call to reflect events or circumstances occurring after the date of the call or to reflect the occurrence of unanticipated events.

In addition, you're reminded that operating results for any historical period are not necessarily indicative of results to be expected for any future period. For a complete discussion regarding factors which could affect the Company's financial performance, please refer to the company's Form 10-Q for the quarter ended March 31, 2020, filed with the Securities and Exchange Commission, particularly the information under the headings Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as subsequent Company filings with the SEC.

This presentation also includes certain non-GAAP financial measures as defined under SEC rules. As required, a reconciliation is provided for those measures to the most directly comparable GAAP measures.

I would now like to introduce Mr. Harsha Agadi, President and Chief Executive Officer of Crawford & Company. Harsha, you may begin your conference.

Harsha V. Agadi -- President & Chief Executive Officer

Good morning, and welcome to our first quarter 2020 earnings call. Joining me today is Bruce Swain, our Chief Financial Officer; Rohit Verma, our Global Chief Operating Officer and soon to be Chief Executive Officer of the Company; and Joseph Blanco, our General Counsel, and soon to be President. After our prepared remarks, we will open the call for your questions.

Let me start by taking a moment to extend our sincerest condolences on behalf of the entire Crawford team to those individuals and families affected by the COVID-19 pandemic. In this challenging time, our thoughts and prayers are with you all.

Before I provide a quick overview of our first quarter financial results for 2020, I would like to take a moment to congratulate Rohit Verma on his new role as Chief Executive Officer and Joseph Blanco as President of Crawford & Company. Rohit will take over the role of CEO on May 15 at the end of our Annual General Meeting, while I will return as a Non-Executive Director on the Company's Board. Rohit has served as the Company's Global Chief Operating Officer for almost three years. His industry expertise, leadership, and client-centric vision makes him an excellent choice to lead Crawford into the future. I am equally excited with the appointment of Joseph Blanco as President of the Company. Joseph joined as our General Counsel in 2016 and we look forward to watching his responsibilities expand as he takes on the additional role as President.

On a personal note, I am extremely grateful for the nearly five years I've served as President and CEO of Crawford & Company. As I look back at our transformation journey, I'm proud of the robust platform we have built as well as our hardworking team and clearly defined vision, mission, and values. I look forward to continuing to serve on the Board to further support this team as we continue to build Crawford's scale and market leadership.

Turning to our first quarter results for 2020. We reported GAAP revenues before reimbursements of $237.5 million and a net loss to shareholders of $11.4 million, driven by a goodwill impairment and restructuring costs. On a non-GAAP basis, we reported revenues before reimbursements of $238.8 million, net income attributable to shareholders of $1 million, operating earnings of $7 million, and adjusted EBITDA of $16.7 million. Adjusting for FX, the reduction in weather-related surge revenues as well as the impact of the COVID-19 pandemic, I will discuss in a moment our underlying revenues were flat quarter-over-quarter.

The first quarter ushered in one of the greatest health crisis we have ever seen in our lifetimes. Within seven to 10 days, we transitioned over 93% of our workforce to working remotely to protect the health and well-being of our staff and our families for ensuring minimal disruptions to claims processing. We are impressed with the ease with which our global teams have adapted to operating in the new normal while maintaining the high level of excellent service we always strive to offer our clients. Meanwhile, we continue to be active in the field with our nurses and adjusters. We have provided additional PPE and special training from experts as necessary to protect them while they stay on the front lines to deliver on our mission of restoring and enhancing lives, businesses, and communities.

Despite the significant challenges presented by COVID-19, we continue to draw on our competitive position in the market and the advantages of our global scale. Our financial position remains strong and we have implemented several actions to preserve our financial strength through the execution of various cost cutting and capital preservation measures, resulting in a $5.7 million special charge. At the same time, we are continuing prudent investment in key infrastructure initiatives to maintain our leadership position and continue to best serve our clients' needs.

Through the first quarter, we accomplished many key business objectives while continuing to work toward Crawford's long-term strategic goals. However, claims volume was negatively impacted by the continuation of benign weather trends in the first quarter despite, incremental claims from the weather-related surge events in Australia. Data collected by the National Centers for Environmental Information shows 10 states in the Continental United States reported record warmest temperatures in the first quarter of 2020. This varies significantly from the first quarter of 2019, when no states reported record warmest temperatures. As a result, we're experiencing lower volume of claims in CCS and contractor assignments in CSS from the less extreme weather conditions experienced in the first quarter.

Claims volume in the quarter was also impacted by reduced business activity driven by the COVID-19 pandemic, which caused a slowdown in certain areas of the business with some more impacted than others based on customer concentration and geographic spread. While new business momentum continued into the first quarter, we are anticipating a slowdown in the pace of client acquisitions as several opportunities have been deferred by potential and current clients as a result of COVID-19. However, we will still continue to advance our sales efforts and leverage our competitive positioning and market leadership, further demonstrating Crawford's resiliency.

Now, I would like to turn the call over to Rohit to discuss our segment results in more detail as well as recent market trends. I will return to discuss our ongoing capital allocation strategy.

Rohit Verma -- Global Chief Operating Officer

Thank you. Harsha. First, I would like to thank Harsha for his leadership over the last five years. I'm looking forward to working closely with him as he returns back to the role of a Non-Executive Director. Harsha has been the lead architect of our mission, vision and, values. This has enabled Crawford to be established as a leader in the marketplace. Our global scale enabled by people and innovation will continue to drive client success leading to market leadership for us.

Speaking of execution across our service lines, our TPA business continue to see robust new business activity with several new client wins in the first quarter. We saw double-digit increases in the UK and Australia business, small markets for us but essential for long-term growth. We continue to consolidate our US position where revenues were slightly ahead of last year but below our expectations. This was driven by a large takeover of a new client being deferred to later in the year, as well as a delay in on-boarding a new client, due to a merger.

Canada experienced lower claims volume in the auto appraisal segment, which was expected due to a client's decision to insource their auto appraisal business late last year. The TPA business will likely experience significant COVID-19 impact as evident in the last two weeks of March in the US where volumes dropped significantly. Lack of economic activity will directly impact new claims and put pressure on the service line.

The April employment statistics are expected to show that unemployment exceeded 16% in April, which would be a record. Our focus in CCS has been to onboard Allstate, our most recent large client win. Our other area of focus was technology development and enablement for our adjusters. During the first quarter, we invested in ramping up for new client wins by securing a brand new site in Dallas with capacity of over 600 staff members. We have already begun to process claims and have several adjusters deployed at this site. In terms of technology, we accelerated the deployment of YouGoLook, our self-service tool, video collaboration, the integration of WeGoLook, and other remote adjusting capabilities. We know that 33% of the claimants in the US are willing to use a self-service option now, number considerably higher than the low single digits we saw prior to the COVID-19 environment. We expect to continue investing in those technologies as we expect they will stay in demand post-COVID-19.

Our revenues in CCS were down $5 million compared to last year. As you know, North America represents over 50% of this segment. As a result of benign weather in the first quarter with no name storms and higher than expected temperatures suppress claims frequency in the first quarter. Additionally, there was no tail from any storms in the 2019 fourth quarter resulting in significant pullback in outsourcing needs of claims by carriers. While we had double-digit growth in Europe and we continue to win new clients across the globe, the weather weakness did not allow these wins to turn into revenue. However, that position us well to continue taking market share.

Crawford Specialty Solutions saw a decline primarily driven by decreased revenues in Contractor Connection. It is another one of our businesses, which is heavily concentrated in North America and subject to the volatility of weather. Assignment counts were down as a large number of clients [Phonetic] have seen a decrease in claims frequency. A delay in job starts, due to the shelter-in-place orders was caused a delay in our revenue recognition. However, in Contractor Connection, we added nine new programs during the first quarter. This included rolling out our roofing program for one of the largest insurers [Phonetic] in the US, additionally, we are in advanced negotiations with three very large carriers.

Building on our leadership, we launched the most extensive decontamination program in anticipation of demand during the COVID-19 recovery and reintegration phase starting now. We have already had several assignments and we expect to continue growing this business. Although our GTS business was impacted by travel restrictions resulting from the spread of COVID-19, especially in the international countries that were first affected, the teams still added several new programs during the first quarter. This included a property claims outsourcing program in Brazil, our largest program to date in Latin America.

Additionally, we were appointed on several large losses in Asia and Europe. These included major casinos in Macau, two airlines in the UK as well as a notable event cancellation in Europe. We also on-boarded a new team in Japan, giving us an opportunity to grow in the world's third-largest insurance market. Our UK business grew double digits and we saw solid growth in Europe. However, the weather-driven weakness in the US and Canada erased those gains. We continue to focus on those areas we can control within our business and remain acutely aware of the volatility of our performance due to weather. In line with market trends, our revenue in the first quarter was impacted by lack of frequency from weather, also the initial impact of COVID-19 hindered our ability to access properties by adjusters, lookers and our network contractors. However, we saw weather activity late in the first quarter, which will likely impact revenues in the second quarter. As a strategy, we will continue to create differentiation through our technology, stability and, people. This differentiation, will lead to more wins and make us the obvious market choice.

As you all know, the impact of COVID-19 pandemic on the global economy has been widespread. We have seen a global decline in claims frequency evident in auto and workers' compensation. As such, we hear from our carriers client -- carrier clients that they are redeploying adjusters are moving operations in-house to minimize the need for their own staff reduction, which will -- which we believe will be followed by other cost reduction measures. There is a high likelihood that these decisions will require us to reevaluate the strength of our pipeline post COVID-19.

While there is tremendous media rhetoric on business interruption claims, our experience is more standard policies include pandemics unless stated explicitly in the policy are bought as a special cover. While we believe the impact of COVID-19 on auto and workers' compensation lines will largely follow the economic recovery pattern, weather-dependent claims should come back as we enter the storm season in the Northern Hemisphere. We have already received claims from the Australian bush fires, storms and floods in the UK. Based on their Tornado and hill activity in recent weeks we expect weather-related claims to continue albeit at a lower level of outsourcing. We are also closely watching settlement preferences as there is a possibility more policyholders may decide to choose cash settlement over repair. This, as you know, will directly impact our Contractor Connection business. At this point, we're watching all of this unfold closely and are staying alert as well as nimble to pivot based on changing trends.

With that, let me turn the call back to Harsha.

Harsha V. Agadi -- President & Chief Executive Officer

Thank you, Rohit. Our management team remains focused on strengthening the Company's cash generation while delivering value to shareholders through a disciplined capital allocation strategy. In the face of this unprecedented volatility, we are evaluating our capital expenditures and we have already implemented smart reductions, where we saw an opportunity to do so. Crawford will continue to make prudent investments in the business to attract, acquire and more seamlessly serve clients through the enhancement of our IT infrastructure as our scale will undoubtedly benefit our clients and our global sales teams now and in the future.

Internally, we will continue to stabilize and strengthen our remote work infrastructure as the COVID-19 pandemic has proven this capability to be imperative in order to remain resilient in today's world. Additionally, we have decided to place a hold on our current share repurchase plans for the foreseeable future. While we have accumulated a large amount of Crawford & Company's shares through our repurchase program in the recent years, we believe it is in the best interest of the Company if we pause this plan during this time of economic uncertainty in order to preserve capital and cash. We sit in a very strong liquidity position in excess of $180 million at the end of March.

With that, let me turn the call over to Bruce to review the financial results of the first quarter in more detail.

W. Bruce Swain, Jr. -- Chief Financial Officer

Thank you, Harsha. Companywide revenues before reimbursements in the 2020 first quarter were $237.5 million, compared with $247.1 million in the prior year's first quarter. On a non-GAAP basis, the Company saw revenues before reimbursements of $238.8 million. Our net loss attributable to shareholders of Crawford & Company totaled $11.4 million in the 2020 first quarter, driven by a goodwill impairment and restructuring costs, compared to net income of $6.1 million in the 2019 period.

First quarter 2020 diluted loss per share was $0.21 for CRD-A and $0.23 for CRD-B, compared with earnings per share of $0.12 for CRD-A and $0.10 for CRD-B in the 2019 period. During the 2020 first quarter, we recognized a non-cash goodwill impairment of $17.7 million related to our Crawford Claims Solutions segment. After-tax, a non-controlling interest this equated to $0.18 per share. Also in the quarter, we recorded restructuring costs of $5.7 million, primarily related to severance costs in an effort to consolidate and streamline various functions of our workforce. After-tax, this charge was $0.06 per share.

On a non-GAAP basis, excluding the goodwill impairment and restructuring costs, the first quarter 2020 diluted earnings per share were $0.03 for CRD-A and $0.01 for CRD-B as compared to 2019 diluted earnings per share of $0.12 for CRD-A and $0.10 for CRD-B. The Company's non-GAAP operating earnings totaled $7 million in the 2020 first quarter or 2.9% of revenues compared with $14.7 million or 5.9% of revenues in the prior year period.

Consolidated adjusted EBITDA was $16.7 million in the 2020 first quarter or 7% of revenues compared to $21.1 million or 8.5% of revenues in the 2019 quarter. While none of our segments were materially impacted by COVID-19 in the 2020 first quarter, we estimate that on a consolidated basis, revenues and operating earnings were reduced by $3.5 million and $1.8 million respectively in the US and Canada. There was minimal impact in the first quarter for our other international operations due to the two-month reporting lag for reporting their financial results.

I will now review the first quarter performance of each of our segments. Revenues for Crawford TPA Solutions were $96.9 million in the 2020 first quarter, down from $97.8 million in the 2019 period. Absent foreign exchange rate fluctuations of $300,000, first quarter 2020 revenues would have been $97.3 million. Crawford TPA Solutions operating earnings were $6.3 million during the current quarter, compared to last year's first quarter operating earnings of $6.7 million. The operating margin in this segment was 6.5% in the 2020 quarter and 6.9% in the 2019 quarter.

Revenues from the Crawford Claims Solutions segment totaled $77.6 million, decreasing from the $83.3 million reported in last year's quarter. Absent foreign exchange rate fluctuations of $600,000, first quarter 2020 revenues would have been $78.2 million. The segment reported an operating loss of $3.7 million in the 2020 first quarter or negative 4.7% of revenues, compared to an operating loss of $300,000 or negative 0.4% of revenues in the prior year quarter.

Crawford Specialty Solutions revenues were $63 million in the 2020 first quarter, down from $65.9 million in the prior year quarter. Absent foreign exchange rate fluctuations of $300,000, revenues would have been $63.3 million for the quarter. Operating earnings in Crawford Specialty Solutions totaled $7 million or 11% of revenues in the 2020 first quarter compared to operating earnings of $12.2 million or 18.5% of revenues in the 2019 first quarter.

The Company's cash and cash equivalent position at March 31, 2020 totaled $83.1 million, compared to $51.8 million at the 2019 year-end as the Company took steps to increase its cash on hand as a result of the current economic uncertainty. Goodwill decreased as a result of the impairment related to our Crawford Claims Solutions segment. We no longer have goodwill in that segment. Pension liabilities decreased $5.4 million in the quarter. The Company made a discretionary $3 million contribution to the US pension plan during the 2020 first quarter. The Company is not planning on making additional voluntary contributions to its US and UK pension plans during the remainder of 2020. The Company's total debt outstanding as of March 31, 2020 totaled $227.1 million, compared with $177 million at the 2019 year-end. This increase was largely due to a $40 million borrowing the Company used to increase its cash position.

Cash used in operations totaled $8 million from the 2020 period, compared to $500,000 provided by operations in the prior year period. The $8.5 million decline in operating cash flow was primarily due to lower operating earnings in the 2020 first quarter and a $3 million discretionary pension contribution. Free cash flow declined by $12.7 million as we made increased software development and technology investments in the 2020 first quarter. Looking forward, our free cash flow generation remains a top priority for the Company.

During the first quarter of 2020, the Company repurchased approximately 155,000 shares of CRD-A and 161,000 shares of CRD-B at an average cost of $8.42 per share. The total cost of share repurchases during 2020 was $2.7 million. As Harsha commented, we have decided to place a hold on our current share repurchase plan for the foreseeable future in order to preserve capital.

On April 6, 2020, the Company announced it withdrew its 2020 guidance. While we are closely monitoring the unprecedented COVID-19 pandemic and it's financial impact on our business operations, it is difficult to quantify the ultimate impact on our clients and the broader economy at this time. However, we expect the ongoing economic slowdown resulting from COVID-19 could have a material impact on our results of operations, financial condition and cash flows in one or more future quarters.

With that, I would like to turn the call back to Harsha for concluding remarks.

Harsha V. Agadi -- President & Chief Executive Officer

Thank you, Bruce. As you can see our first quarter financial performance, strong sales pipeline, and new business momentum demonstrates Crawford's resilience despite the softness seen due to weather, along with the significant challenges presented by COVID-19. We entered the crisis with low debt and a strong liquidity position relative to peers. As we emerge from this crisis, we remain confident in our strong market position and long-term strategy supported by Crawford's financial strength and flexibility. We believe we can come back quickly post COVID-19.

As we enter the second quarter, we are focused on enhancing our competitive position in the market, providing excellent service to our clients and preserving long-term value for our shareholders. In doing so, we will continue to make prudent investments in technology to solidify Crawford's position as a leader within the industry. Due to the success of our strategic investments in the business, we continue to believe Crawford can achieve sustained revenue and earnings growth in the years to come.

It has been an absolute honor to serve as the President and CEO of Crawford & Company and I look forward to watching the continued success of the Company unfold as a member of the Board. I would like to thank each and every one of our employees for their hard work and dedication during my tenure. Crawford would not be the successful organization it is today without their contribution and commitment. I would like to thank the Chairman, the Board of Directors and the Crawford family for the opportunity to serve and lead Crawford. I extend my best wishes to Rohit and Joseph and hope you will join me in congratulating them in their new role.

Thank you again for your time today. Operator, please open the call for questions.

Questions and Answers:


[Operator Instructions] At this time, there are no questions. Mr. Agadi, are there any closing remarks?

Harsha V. Agadi -- President & Chief Executive Officer

Yes, thank you very much. I want to thank all of you for listening to the call and I wish the employees the best. I would like to just let all employees and investors know one thing that the era that has Rohit Verma, Joseph Blanco and Bruce Swain going into the next-generation leadership will be called the growth era of Crawford & Company. Thank you all.


Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 11:30 AM today through 11.59 PM on June 6, 2020. The conference ID number for the replay is 337-72-43. The number to dial for the replay is 1855-859-2056 or 404-537-3406. Thank you. You may now disconnect.

Duration: 33 minutes

Call participants:

Harsha V. Agadi -- President & Chief Executive Officer

Rohit Verma -- Global Chief Operating Officer

W. Bruce Swain, Jr. -- Chief Financial Officer

More CRD.B analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Crawford & Company Stock Quote
Crawford & Company
$6.56 (-0.76%) $0.05
Crawford & Company Stock Quote
Crawford & Company
$7.03 (2.03%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.